Good morning.
Thank you very much for your invitation to appear before you today.
Today I'm representing both the Pembina Institute and the Climate Action Network of Canada. I'd like to elaborate today on one of the recommendations contained in the package of proposed amendments to Bill C-30 that was submitted by some 23 Canadian environmental organizations.
The recommendation is that the bill require that regulations provide for, one, a fixed cap on absolute emissions that extends the Kyoto-level target to heavy industry for the 2008-2012 period; and two, an allowance trading system to facilitate efficient allocation of emissions reductions. This is an extremely important recommendation for us because heavy industry accounts for almost half of Canada's greenhouse gas emissions and because those emissions have been increasing more rapidly than the national total.
I prepared a seven-page technical document that describes how this recommendation could be implemented. It's entitled “Fair Share, Green Share: A proposal for regulating greenhouse gases from Canadian industry”. Unfortunately, we were not able to prepare a French version in time for this morning, but we'll make one available in the next day or two. Meanwhile, the English version is available now on the Pembina Institute website and on request.
There's a strong consensus in Canada that greenhouse gas emissions from industrial facilities must be regulated, but a critical question remains. That question is how stringent regulated targets should be, and how quickly they should be applied. The government has indicated that targets should not actually reduce emissions below current levels until the 2020-2025 period, and that targets should not apply until the end of 2010. We believe this falls very far short of what is needed.
I'd like to emphasize four key points of context for answering this question of how stringent targets should be and how quickly they should be applied. First, not only does heavy industry account for almost half of Canada's emissions, but the two biggest contributors—electricity generation and upstream oil and gas—have increased their emissions by 35% and 58% respectively between 1990 and 2004, significantly more than the increase in emissions from individual Canadians. Clearly the situation is not acceptable.
Secondly, meeting Canada's Kyoto target is a legal obligation. This obligation has been a part of international law for two years, and we believe the time when we could have a debate about the target as a take it or leave it option has long since passed. The government must focus on meeting our legal obligations, not call them into question. Canadians want their country to be law-abiding.
Third, the overwhelming consensus of climate scientists is that cutting greenhouse gas emissions is not just essential but urgent. To play an adequate role in preventing dangerous climate change, Canada needs to reduce its emissions to 80% below the 1990 level by 2050, as other jurisdictions are now committing to do. To meet this target, Canada's emissions must fall to around 25% below the 1990 level by 2020.
Fourth, the Kyoto Protocol provides mechanisms for taking immediate responsibility for our emissions by investing in emission reductions in poorer countries while we begin the work of implementing deep emissions cuts at home. I'd like to make it as clear as I possibly can that this has absolutely nothing to do with so-called hot air credits from Russia. Instead, I'm talking about the Kyoto Protocol's clean development mechanism, under which billions of dollars in investments are being made right now in specific emission reduction projects that have to go through a rigorous transparent process to show that the reductions are genuine.
Because greenhouse gas is spread all around the world, emission reductions are equally valuable in preventing dangerous climate change in Canada wherever in the world those reductions take place. Our proposal, then, is to set, for the 2008-2012 Kyoto compliance period, Kyoto-level absolute emission targets at 6% below the 1990 emissions level for each of the electricity generation, upstream oil and gas, and energy-consuming sectors. These targets could be met by combining on-site emission reductions with domestic or international Kyoto-compliant emission reduction credits generated from projects that generate demonstrable reductions beyond business as usual.
We also propose a compliance option of payments at $30 a tonne of carbon dioxide equivalent, to an independently administered greenhouse gas reduction trust that would be mandated to reinvest all revenues in domestic offset credits from projects located such that revenues stay in their province of origin.
For the post-2012 period we'd like to see an announcement by government of an intention to gradually tighten targets to reach the vicinity of 25% below the 1990 emissions level by 2020; to limit purchases of international credits as needed such that the market price for domestic credits is at least $30 a tonne of CO2 equivalent, rising to at least $50 a tonne by 2020; and to auction a steadily increasing proportion of allowances.
This proposal has been designed to meet six key objectives. The most important of these is environmental fairness. The proposal meets this objective by requiring heavy industry as a whole to contribute to achieving Canada's Kyoto obligations in proportion to its share of emissions. Heavy industry accounts for close to half of Canada's emissions and would contribute close to half the reductions needed to meet the target.
The proposal ensures environmental fairness by requiring the most emission reductions relative to business-as-usual levels from the sectors contributing most to emissions growth post-1990, which is the internationally accepted base year for emission reduction commitments.
The proposal also meets the critical objective of economic feasibility, because it distinguishes sectors according to their ability to pay. I'd like to take a moment to justify that statement.
The proposed targets represent reductions in emissions relative to a business-as-usual projection of approximately 11% for the energy-consuming sectors, 36% for electricity generation, and 46% for upstream oil and gas. I'll discuss each of these in turn.
The target for the energy-consuming industries is obviously modest. The proposed emission reduction of 11% relative to business as usual is close to the 12% reduction proposed by the previous government that was broadly accepted by industry. These industries could face difficulty in taking on a more stringent target as they are relatively mobile and exposed to international competition.
The electricity generation sector can manage a more stringent target because the need to generate electricity relatively close to the consumer means the sector has little vulnerability to international competition, and in addition, electricity prices in Canada are often regulated. Costs should be reduced by widespread government support for electricity conservation, low-impact renewable energy, and cogeneration, helping reduce the quantity of emission reductions that electricity producers would have to pay for themselves.
Assuming that such government support existed and that coal phase-out in Ontario proceeded rapidly, the cost to the remaining coal-fired generators would be between about 0.6¢ and 1.3¢ per kilowatt hour. This could be compared to an average residential price of electricity in Canada of nearly 9¢ per kilowatt hour in 2004.
The upstream oil and gas sector also has relatively little vulnerability to international competition because its profit margins are large and because resources such as oil sands cannot be moved to a different country. Even though the proposed emission reduction of 46% relative to business as usual may seem large, it is similar to the 50% reduction that Shell Canada has voluntarily committed to achieve by 2010 for its first oil sands operation.
We calculate the cost to an oil sands producer would be only between about 58¢ and $1.16 per barrel in U.S. dollars. This is a small amount compared to recent variations in crude oil prices.
The calculations of the costs I've just outlined are very straightforward, and I'd be happy to explain them during questions.
I'd like to add that our proposal also meets four other important objectives. It provides environmental integrity by setting targets in terms of actual emissions, not emissions intensity, and ensuring that all options for compliance represent real, near-term emission reductions.
It provides for urgent domestic action by signalling an emissions price of $30 a tonne, designed to stimulate large-scale development of low-emission technologies such as carbon capture and sequestration.
The proposal provides for geographic balance via the guaranteed $30-a-tonne domestic compliance option that would provide an alternative to investing in international projects.
Last but not least, it provides for certainty: price certainty for industry, by initially limiting the cost of emission reductions to $30 a tonne; quantity certainty in the form of a clear outcome for actual emissions levels; and broader regulatory certainty by including indicative information about targets and prices out to 2020 and by adopting a design that will be robust for the long term.
I'd also like to note that although the proposal is applied on a sectoral basis, it would not be very different if it were applied on a territorial basis because of the way the three key sectors are distributed regionally.
In conclusion, requiring that industry assume a fair share of responsibility for cutting greenhouse gas pollution will not only get us nearly halfway to Canada's Kyoto target, it will also put Canada on track to have the world's cleanest oil and gas production, a 21st century electricity system, and eco-efficient manufacturing. We believe this is the vision we need to be aiming for.
Thank you.